Cyber Insurance: Shield or Shackles for ICT Providers?

Do we really need Cyber Insurance? Are there better ways to alleviate cyber risks in procurement? Is this yet another cost and compliance burden for providers?

In my experience working with clients, it is not uncommon to be met with these questions. Ultimately, unpacking cyber insurance comes down to understanding that insurance is a safety net, and cyber insurance is no different.

Cyber insurance is a valuable safeguard in public sector procurement, but it must be part of a wider, structured approach to cyber risk management as the Australian Government continues to digitise and expand its reliance on third-party ICT providers.

Government agencies routinely procure ICT goods and services that involve sensitive data, mission-critical systems, and interconnected platforms. A cyber incident affecting a contracted vendor could compromise government operations and public trust.

While having cyber insurance doesn't assist service providers to minimise the risk of holding critical data, it does provide financial coverage for the expenses incurred when (not if) a cyber incident occurs. Cyber insurance can cover expenses such as the response and remediation, legal and forensic costs, some third-party liabilities, business disruption and recovery expenses. As such, requiring suppliers to hold cyber insurance adds a layer of financial resilience, and ensures support is available when a breach occurs.

Mandating Cyber Insurance Signals a Shift in Expectations

The increasing requirements around cyber insurance also serves as a market signal, encouraging vendors to maintain better cyber controls to meet insurance eligibility. While the need for cyber insurance is understandable, it is not a panacea. The Government, in collaboration with service providers, must continue to strengthen its procurement processes to prevent cyber incidents before they happen.

At Synergy Group, we apply the following processes across all our procurement engagements. These include:

• Mandating Cyber Risk Assessments - Cyber risk assessments are embedded in our procurement planning, particularly for ICT contracts involving data handling, system access, or integration with government platforms in their supply chains.
• Meaningful Engagement with Supplier Due Diligence and Assurance - Before entering contracts, we assess supplier security maturity by reviewing certifications (e.g., ISO 27001), policies, previous breaches, and subcontracting arrangements.
• Adding Security-Focused Contractual Clauses - We ensure that contracts include minimum cybersecurity requirements, clear breach notification protocols, ongoing reporting obligations, and requirements for cyber insurance coverage where appropriate. My colleague Naresh Danthanarayana has done excellent work on this for several agencies.
• Continuous Contract Management and Monitoring post contract execution - We work collaboratively with agencies to help them understand the need to implement mechanisms that monitor supplier compliance in all aspects. This includes cyber risks throughout the life of the contract and audits and performance reviews, as part of their contract management processes.
• Ensuring point-in-time and ongoing alignment with Government Frameworks - We ensure that all procurement processes align with key Australian Government guidance, such as the Protective Security Policy Framework (PSPF), the Information Security Manual (ISM), and the Digital Sourcing Framework. Agencies must be aware however that the onus is still on them to monitor this in their procurements and contractual arrangements.

Cyber insurance is a practical tool for managing the impact of security breaches, but it is not a silver bullet. Providers must have strong risk governance, procurement, and contractual controls. Ongoing oversight and continuous focus on the shifting cybersecurity landscape will ensure that cybersecurity management becomes part of a mature, end-to-end cybersecurity strategy

If you want to know more, need assistance drafting relevant procurement documentation, or your legal team need help drafting the relevant clauses, please contact us here at Synergy Group!